Globalization (26)

The manner in which currency derivative contracts were structured, marketed and the conditions that enabled their marketing in the first place across continents points out to a larger design of some international banks.

As pointed out in the first two parts of this series, SMEs lost over $500 billion on currency derivatives contracts that they entered into with banks. Interestingly, in these contracts, banks never lost. If it was sheer coincidence, it was remarkable coincidence, no doubt. I am reminded of my high school teacher who often used to tell us that coincidence is the word we use when we can't see the levers and the pulleys.

Naturally, evidence available with us points out to the need for a complete investigation. And in such a diffused scenario, let us not forget, absence of evidence does not point to the evidence of its absence.

But who will bell the cat, especially those large global banks? National regulators, especially Central Banks, are not designed to carry out such investigations across continents.

When the Norwegians met in February 2008 to propose names for the Nobel Peace Prize, they were perhaps aware of the possible controversy that nominations for Barack Obama could generate. After all, Obama would assume office as American President only on January 20, 2009. And till then, it is common knowledge Obama did not do anything spectacular to deserve the Nobel.

The chairman of the Committee, Thorbjorn Jagland, said the prize has often been used to "encourage" laureates, rather than reward them for achievements. "The committee wants to not only endorse, but contribute to enhancing that kind of international policy and attitude which (Obama) stands for," Jagland then rationalized.

Adoption of International Financial Reporting Standards could accentuate volatility, driving capital away from the markets. The ICAI should defer the introduction of IFRS and first constitute a committee of experts to identify the need for this convergence.